While industry had expected the mill to remain open for decades, the new owners said last night it would close in three to five years, making way for a wine and tourism development at the prime coastal site, which has a deep harbour suitable for cruise ships.

Mr Wood, founder of tourist accommodation website wotif.com, and Ms Cameron, founder of outdoor clothing chain Kathmandu, have agreed to operate the mill to give the industry time to shift to plantation timber.

Mr Wood, who gave $1.6m to the Greens before the last federal election, said last night he and Ms Cameron saw that transition occurring more quickly than "extreme" industry positions of about 20 years. "We don't want to see people thrown out of work," he said, "but we also probably see more clearly the need for a restructuring in the forest industries generally and for people to open their minds about new ways of making a living in that part of Tasmania."

Ms Cameron, who recently donated $45,000 to the state ALP, confirmed she was happy to provide a period of transition, but was unsure of how long this would be.

Timber industry groups were "numb", "shocked" and "frankly dismayed" by the deal, while a host of long-established, family-owned sawmill operators said they feared their days were numbered.

Rob Torenius, whose family-owned sawmill at Forcett, east of Hobart, relies on the Triabunna mill, said: "Our confidence has been eroded over the last few months and this is really a final blow."

Like other sawmills in the state's south, the Torenius operation, established in 1967, relies on the sale of wood off-cuts and residues to Triabunna to make a profit. Mr Torenius said about 15 per cent of his mill's income came from residue sales to Triabunna.

The industry warned that its entire operations in southern Tasmania -- including the major Ta Anne veneer mill south of Hobart and logging operations by Forestry Tasmania -- would no longer be viable without Triabunna. This was because Triabunna offered a means of raising income from poor quality "head logs" -- the tops and branches of trees not suitable for most saw and veneer mills.

The Forest Industries Association of Tasmania warned that the historic forest peace deal with conservationists, struck last month, might now not survive.

Industry support for the deal - which would shift the industry out of most native forests over several decades and protect 360,000-572,000ha - is predicated on Triabunna remaining open for decades.

"Tasmania's forest industry has participated in the peace process in good faith to date and would be bitterly disappointed if the whole process was to now be undermined by this arrangement," said FIAT chief executive Terry Edwards.

Gunns had been negotiating to sell Triabunna to logging company Aprin, which had applied to the state government for a loan and had secured a profit-sharing deal with Forestry Tasmania.

Aprin owners Ron and Brendon O'Connor said the peace deal was dead and Ms Cameron and Mr Wood had their industry "by the short and curlies".

The father-and-son team, who had expected to be the mill's owners by week's end, said they had offered Gunns $16m - $6m more than the entrepreneurs - and demanded Gunns explain its decision.

"To give the woodchip mill to two of Australia's richest people, reputedly worth $600m between them, for a $6m discount, compared to what they were asking from us, is gut-wrenching," Mr O'Connor said.

Aprin was seeking legal advice "as to whether there is any chance to salvage the situation and secure the mill to save our industry".